Dividend stocks are everywhere, but many just downright stink. In some cases, the business model is in serious jeopardy, or the dividend itself isn't sustainable. In others, the dividend is so low it's not even worth the paper your dividend check is printed on. A solid dividend strikes the right balance of growth, value, and sustainability.
Today, and one day each week for the rest of the year, we're going to look at one dividend-paying company that you can put in your portfolio for the long term without too much concern. This isn't to say these stocks don't share the same macro risks that other companies have, but they are a step above your common grade of dividend stock. See last week's selection.
After actually taking a week and some change off for vacation (yes, even I get vacation), this week I want to focus on why ATM and security product maker and servicer Diebold
Pop quiz, hot shot...
What publicly traded company has the longest streak of consecutive annual dividend increases? Think you know the answer?
If you said Johnson & Johnson
For those of you that chose 3M
To end this game sooner rather than later, the correct answer is Diebold, with 59 years of consecutive annual payout increases!
Diebold, your own personal ATM
I can only imagine at least half of you out there are scratching your heads and thinking, "Who is Diebold?" Diebold is the company behind many of the ATMs you use, in addition to designing and installing the pneumatic tubes you use at drive-thru banking windows, security products ranging from safes and vaults, digital surveillance systems, and various project management services.
The reason Diebold looks so attractive now, as if 59 consecutive annual dividend increases isn't enough to pique your interest, is that it recently fell after slightly dropping the high end of its previous earnings forecast. Earlier this week, Diebold reported that its profits jumped 27% as revenue from its Latin America/Brazil region rocketed higher by 30%. However, a delay in orders for voting machines from Brazil until 2013 caused the company to slightly reduce its sales and earnings forecast. In response, investors clubbed the stock.
As for me, I see this as an excellent buying opportunity. Let's take a quick glance at how Diebold stacks up next to its peers.
Really, all three companies have something to offer, but neither Tyco nor NCR have the entire package that Diebold can bring to the table.
Looking at Tyco, the company's growth is its Achilles' heel. Shareholders are thrilled that the company is growing 3%-5% organically, but until the company is broken into its individual components (fire and security, ADT, and flow control), they probably aren't going to unlock the full value of Tyco. Let's also keep in mind that Tyco has around $3 billion in net debt.
NCR, on the other hand, has had no problem with rapid growth. In the second quarter, it one-upped Diebold and beat EPS expectations on an 11% rise in revenue and a 19% jump in total orders in its financial segment products. Retail solutions, however, saw revenue decline 9% with Europe weighing the company down. The big thing to note here is that big zero in the yield column -- investors will get nothing for free while owning NCR.
Move over, Rover, and let the king come over
Then there's Diebold, which has been buying back its shares since 2004 and is pushing internationally for double-digit growth with just $100 million in net debt. Its yield doubles that of Tyco and Wall Street projects it'll grow by 10% per year over the next five years.
And if that wasn't enough, have I mentioned (twenty times by now) that it's raised its dividend for 59 straight years? Here's a recent look at Diebold's market-leading dividend distribution:
Source: Diebold investor relations. *Assumes estimated quarterly payout of $0.285.
Trust me folks, it's a straight line higher if you go back those 59 years. The best part about Diebold is that in spite of its reasonably high 3.5% yield, it takes dividend hikes in stride and understands the true meaning of long-term stability. Diebold's payout ratio is just 38%, meaning these payments are likely very sustainable, and provided the global economy doesn't completely collapse, Diebold's dividend streak is likely to continue for many years to come.
ATM's and security systems aren't the sexiest business by any means, but Diebold gets the job done in a big way. Diebold's inroads in Latin America should pay big dividends (pun intended) over the coming years as its competitors struggle to cope with large amounts of debt and find ways to compete with its market-leading products. In the words of Dick Vitale: "Scoreboard, baby!" You can't beat 59 straight dividend increases, and Diebold is the king of kings when it comes to dividend aristocrats.
If you're craving even more dividend ideas, I invite you to download a copy of our special report, "Secure Your Future With 9 Rock-Solid Dividend Stocks," which is loaded with income-producing companies hand-selected by our top analysts. Best of all, this report is free, so don't miss out!
Fool contributor Sean Williams has no material interest in any of the companies mentioned in this article. You can follow him on Motley Fool CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
The Motley Fool owns shares of Johnson & Johnson. Motley Fool newsletter services have recommended buying shares of, and creating diagonal call positions in both, Johnson & Johnson and 3M. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that's dripping with transparency.